Saturday, September 26, 2020

Wells Fargo Finally Comes Through!

And it's over ladies and's finally over!  Yes, we are officially done working with Wells Fargo Home Mortgage.  At one point, it looked like WF had ghosted my refinance application, but a few days after this last blog post, I got an email from Leticia, the mortgage processor.  She explained in her email to my wife, Jessica, and me that they were working with their "underwriting team" to move our file over to the Closing department.  I gotta say it was a little strange getting updated by Leticia.  She hadn't done it before!

Then Leticia proceeded to email an additional three more times with updates.  She was polite, telling us to "have a great weekend," and she even threw in a happy face emoji on one of her emails.  I didn't know what the heck was going on!  If you've read my last two blog post on my refinancing with WF experience, you'd know that this was not what I'd come to expect in the form of customer service.  I was a bit taken aback, but happily surprised that my loan application had not been ghosted!

Leticia redeemed herself in my book.  I would've appreciated a consistent concern for my experience as a WF Home Mortgage customer from a mortgage processor, but as they say..."better late than never."  One person who was my advocate throughout this 6.75 month ordeal...yes, it took that long...was my mortgage consultant, Will Harrelson.  If I were to rate his customer service, I'd give Will:

10/10 for availability

9/10 for communication

10/10 for advocacy

10/10 for professionalism/friendliness

If it weren't for Will, my application would've probably been shelved.  So big ups for Will!

Wells Fargo Home Mortgage underwriting team finally sent my application to the Closing Department at the end of the first week of this month.  It took another week before the closing docs were available.  I was told that the earliest I'd be able to have a notary come to my home would be 9/18.  I thought I'd get an email from Wells Fargo facilitating this last part of the closing process.  But the only thing I got was a phone call from the notary requesting a time to meet later in the evening.  It was unexpected.  Usually, a bank will hire a company to book a notary.  This hired company will send you an email and let you book a time with one of the notaries.  But this is Wells Fargo!  They told the notary to "just call" me.

Luckily my wife and I weren't doing anything that Friday night, so we went ahead and made a late appointment with the notary.  We just wanted this ordeal over with.  One last critique of Wells Fargo was their closing docs.  Listen, I've closed on several mortgage least 8 times I've done this.  I've never been stumped on what to do or how to fill out a form.  Wells Fargo's forms stumped us all.  Plus they asked for personal information I'd never had to provide with anyone else.  For example, we were asked if we'd been married before.  Jessica and I had to write in the names of our former married partners.  And this wasn't an optional thing!  It's like they wanted to know all about us.

Well, Wells Fargo came through after all.  They gave me what they promised me, a new loan on an investment property I own at a rate of 4.75%.  I also got an incidental amount of cash at closing, $1895.  That wasn't bad.  But we went through too much turmoil for me to give WF Home Mortgage anything beyond a 3 out of 10.  They did offer me an opportunity to leave a review of my experience via a survey.  Of course I let them have it.  I still maintain the position that if you can, you should avoid doing any home mortgage business with WF.  Folks, stay away!  There are plenty of smaller banks out there willing to consider your mortgage application with sincerity and decency.  Until next time!  

Monday, August 17, 2020

Wells Fargo Ghosted My Refi Application & Wastes My Time Again!

 As they say, "Fool me once, shame on you.  Fool me twice, shame on me!"  I feel like a dang fool right about now.  You see, I trusted Wells Fargo Bank and their Home Mortgage Loans division to do the right thing, i.e., to make things right for me.  It seems expecting follow through from WF employees was too much to ask for.  Before I get into the latest mess that has been my rental property refinance process, let me provide you with a link to the first part of this unfortunate saga.

A day after I wrote, Wells Fargo Kills My Rental Prop Refi..., I received emails from both a WFHM Processing Manager AND Branch Manager, apologizing for "any lack of communication" on their side.  The Branch Manager, Ryan, would actually call me and explain to me that my Mortgage Consultant, Will, had gotten some things mixed up and that my loan would indeed be approved, with a guaranteed 4.75% interest rate.  Remember, rental properties command higher interest rates because they are riskier.  This occurred in mid-May.

My Mortgage Consultant, Will, also called me in mid-May and apologized to me for the mistakes he made.  He reiterated the offer of 4.75% interest rate on a 30-year rate and term loan for my rental property and stated I wouldn't have to come to closing with any money.  By this time my rental property had appraised at $170K, exactly where we needed it.  Essentially, I was back in the game, so to speak.  Things, I thought, would start moving forward once again and I could finally put this experience past me.  I was wrong.

In early June, Will sent me a text message.  He wanted to know if I had a Title company out in Memphis, TN (where my property is located) I wanted to work with.  This made me feel like we were heading in the right direction.  Will sent an email out to Stewart Title.

On June 8th, I sent Ryan and Kelly an email seeking an update on a potential close date.  Kelly replied on June 11th:

Hi Carlos ~  your file is being reviewed by the processor next after she is finished with the file she is currently working on.   You will be hearing form us today.  J

Thank you for allowing us another chance to get this done for you.  J

But I never heard back from the "Processor."  On June 15th, I was sent new Loan Disclosure Docs by WFHM.  The new Docs showed the rate at 4.75% as I had been guaranteed, but it also showed that I had to bring $800 "cash to close."  I mean, it's not a lot of money, but the point was they had assured me I'd not be paying any money to close.  So I texted Will.  Will reassured me.  He texted me back, stating "these numbers get adjusted prior to closing," and "we'll make sure you're bringing in a limited amount at close."  Okay, I thought.

On June 18th, Will texted me again, stating a title rep had finally been assigned.  But something soon changed.  It was as if I were a brand new applicant.  Will asked me for more documents, communicating as the in-between with Underwriting.  Why did my Mortgage Consultant have to do this?  I've done many refinance applications with reputable lenders and they always assign someone other than the consultant to reach out for docs.  Well...I did have someone before.  Her name is Leticia.  Apparently, the Branch decided to excuse Leticia from having to work with me after I wrote about her lack of customer service.  But they failed to assign anyone else!

Here is a list of everything I had to produce between June 18th and Monday, August 10th for Will and the mysterious WF Underwriters:

1) A statement from my Roth IRA company showing I transferred funds to Wells Fargo Roth IRA.  (This was a basic custodian to custodian transfer and WF wanted to know where the money came from).

2) All of my mortgage statements once again.  I had to once again log-on, download, and upload every single mortgage statement for my five current properties.

3) A copy of the Loan Proposal from a separate Refinance application I was doing with Cherry Creek Mortgage on my personal residence.  Wells Fargo's underwriters wanted to make sure I was doing a "rate and term" refi only, i.e., not getting any cash back on the refi of my personal residence.

4)  An explanation as to why Cherry Creek Mortgage ran a credit check/report.  Obviously they ran a credit check prior to my closing date with them so as to make sure I had not taken out any new credit!  But WF wanted an explanation nonetheless.

5) A "signed" Settlement Statement from the Title/Escrow company that handled my closing with Cherry Creek Mortgage.  I'd sent Will my copy, scanned, but the WF underwriters wanted it signed by the Radiant Title/escrow agent.  This meant more leg work for me, of course.

On August 3rd, I emailed Ryan and Kelly, and asked them if my application had been shelved.  No answer.

Will was the only one to respond:

"Hi Carlos, nothing is shelved we just got another request from the underwriter for more things.  I can't believe it.  Did your other refi close already?"

This text message conversation is what led to request for docs number 5 from above.

Even WF legal is Unresponsive!

I had a letter sent to me recapping my initial experience with WF Home Mortgage.  I decided to call the number and talk to the letter's author, a lady named, Sara.  When I looked her up on LinkedIn, turns out she's part of their legal department.  Well...I left an angry complaint on her line, asking her to address my matter.  She never contacted me back.  It was as if my call never happened.

I called their Home Mortgage Customer Service Department and was received by a lady named, Jennifer, an Executive Office Case Specialist.  She was so receptive!  I thought I had the wrong number at first.  Jennifer said she would make a thorough inquiry.  This was on August 4th.  I followed up with Jennifer on August 13th.  She stated:

Sorry for the delayed response. I just got access to my computer. I see we are pending underwriting currently. My investigation is still open, and I have no conclusion just yet. I am working diligently to get this taken care of. I apologize.

Would I Be Treated Differently If I Were White Or Does WF Just Suck?   

I'm not so sure I would've been treated differently if I were white.  Unfortunately, because Wells Fargo has held my application in limbo (underwriting) since mid-May, these are they types of negative thoughts that enter one's head.  Mind you, I started my application in early March!  I am going on 5.5 months of this process.  Is this not excessive?  Even with Covid-19, I know plenty of people who have been in and out with a refi process in less than 2 months!  With other banks, of course.  Not shady, Wells Fargo!

Meanwhile, I haven't been able to apply for new credit.  Why?  Because if you apply for new credit during a home loan application, your debt-to-income ratio can change.  This is cause for the bank dismissing your application.  I'm sure you've heard Realtors tell you, don't buy anything on your credit card right before Closing.  

Just look at all of these angry consumers who have had the misfortune of working with WF Home Mortgage: Consumer Affairs, 1-Star, 235 Ratings.  

While I'm At It

The current CEO of WF is Charles W. Scharf.  He's been at the helm since October 21, 2019.  He's definitely inherited a mess.  His predecessors led WF into the 2016 account fraud that cost the company billions...hence shady!  If WF is to become the reputable bank it used to be (I've been a multi-account client since the late 90s), Mr. Scharf is going to have to make deep, and I mean deep, changes to the company's culture, obviously in the area of customer service.

Wells Fargo Stock is vastly under-performing its peers:

Reviewing My Investment In Wells Fargo Over The Last 4 Years Shows ...  

Credit for chart: Stefan Redlich at

I Just Want Closure

I'm seriously tired of dealing with WF.  If it wasn't painstaking, I'd be looking to close out all of my accounts with them.  I want what was promised to me both verbally and in writing.  And I think I have been patient enough.  As we Latinos say, Ya Basta!  Enough is enough, WF.  I want a Close date, and docs ready for a notary now!  Before I go, I want to thank Will for being my advocate and for seemingly being the only one at WF that cares about my application.

How about you amigos?  Have you had a negative experience with WF Home Mortgage?  Comment below.  Thanks for reading!  Until next time.  

Tuesday, August 11, 2020

Didn't Check My Home Owner's Policy, Then My Water Heater Leaked

My wife, Jessica, always tells me that the universe is listening so I should refrain from speaking negative things out-loud.  Mexicans can be very superstitious, and despite my having a B.S. degree in bio sciences, I'm compelled by some cultural force to mind her exhortation.  I blame my parents.  Growing up, for example, every time I dropped a utensil on the floor during a meal, my mom would say, "Ahí viene la visita," or here come (unwanted) visitors.  Once my parents got in a bad car accident.  It was somewhat traumatic for them, and for my older sister and I who had to see them all bruised up.  Before they could get back in a car (drive again), they had to get cured of their susto, or scare, by a medicine woman in East San Jose where we lived.  She used all sorts of oils, fragrances, and incense smoke on them while uttering a Mexican Native American language.  I guess it worked because my parents were driving another used car soon after that.

All to say that in January, I spoke some negative words out-loud in a convo with Jessica: "Watch, the water heater will break this year."  Well, the water heater was on year 15 of its own existence so I can't really call myself prophetic.  On August 2nd, while putting her bike away in the garage, Jessica noticed a huge puddle on the water heater platform and directly below it on the ground.  The walls were wet as well near the floor.  Check it:


Not gonna lie...a little bit of panic ensued.  I started imagining dollar bills flying out the window.  This was my first water heater issue as a homeowner (I bought my home brand new so the water heater was as old as the house).  It was a Sunday afternoon.  I called a local plumbing company here in Oceanside, but they couldn't come out.  The company's owner, however, did provide me with help over the phone: Shut off the valve at the top of the water heater by lifting the handle.  This would stop water flowing into the water heater, and thus stop the leaking.  He also called another company he works with to come inspect the drywall damage in the garage and in the adjacent interior rooms.  Long story short, water was still flowing into the water heater from the valve, and the water was still leaking onto the drywall damaging it even more.  

My neighbor came by and gave me a hand.  He and I drained the water heater using a water hose, but water kept pouring out of the hose even after the water heater should've been emptied.  My neighbor has many skilled laborer connections, and his daughter's boyfriend is to my luck, a plumber.  So, that Sunday evening, a plumber worked on fixing the leak in the valve.  I'd made contact with Allstate that same day and began a claim.

The licensed Drywall company charged me $1,200 to remove wet drywall, and insulation, plus dry.  Ouch!

Before Calling Any Professional Service

Now let me tell you what I should've done before contacting any professional service for help.  I should've checked my home owner's policy!  Had I done this first, I would've read that my deductible was a whopping $5,000!  Apparently, I'd not changed it since buying the house brand spankin' new.  My premium has changed naturally, as all things go up with inflation, including coverage costs.  From 2005 to 2020, my premiums went from about $1150/year to $1450.  Seeing I had some warranties at the start of my ownership, I probably got over-confident about any disaster happening, and had not thought to increase my premium and reduce my deductible in the process.

By the way...aren't home owner policies a total racket?  I mean we pay thousands of dollars to an insurance company, and hope that some day we have a major disaster at our homes so we can actually make a claim and get some of that back!  

Okay, so I had to drop my claim with Allstate because no way was I going to shell out $5K to get a $3K check from them for the damages incurred.  Not to mention, filing insurance claims almost always leads to premium increases.  Save your claims for the big one, a kitchen fire, for example.

After learning of my $5,000 deductible from a dusty Allstate policy renewal doc, I called my local agent and asked her to raise my premium whatever amount was necessary so that my new deductible is $2,500.  It turned out to be less than I thought.  Like $11 more per month, i.e., an extra $132 a year.  Some people pay a maximum premium such that their deductible is only $1,000.  There is a trade-off, of course.  I'm comfortable stroking $2,500 for any damage beyond $5,000.  It's gotta be worth it, right?

Get Cheap, But Reliable Labor If You Are Strapped for Cash & Don't Want to File A Claim

Here is what I spent on this completely random and totally NOT self-fulfilled event.

$1,200 for the removal of wet drywall and insulation, plus fans and a dehumidifier left over a couple of days.  They wanted to charge me an additional $700 to repair the drywall.  No thanks!

$480, What my neighbor's contact, Mauricio, charged me to repair the drywall completely.  Saved $220.

$1,150, What my neighbor's daughter's boyfriend charged me to fix the leak, remove the water heater, set a new water heater on the side temporarily, and to put it back on the platform once drywall repair was complete.  I saved $300 because the plumbing company quoted me $1450.

Total: $2,830.

Mauricio did a great job!  Only I had run out of paint and had to match it at Lowe's.

Use your contacts before going with a contractor.  If you happen to have Latinx friends, they may know of solid workers who can handle almost every type of home repair/improvement need.  Yes, you can go with a full-fledged company that employs crews and office workers, etc., just expect to pay more.  If your insurance covers it, and your deductible is reasonable, then by all means, spend, spend, spend!  Remember, you can also claim loss of personal items under most HO policies.

Review Your HO Policy Every Year!

Don't be a dope like me.  Every year you should speak with your HO policy representative/agent to have an evaluation done.  They will make sure you're not under-insured as a result of substantial market appreciation, or if your deductible needs adjusting.  Thanks to my resources, I was able to mitigate the damage to my wallet on this one.  But I realize some people aren't as connected around the community as I am.  So, your best bet as a homeowner is to add these policy reviews and potential loss assessments into your calendar.  Don't be caught by surprise like I was!  Thanks for reading.    

Tuesday, July 14, 2020

How My Due Diligence Saved Me From A Very Costly Investing Mistake

Well folks...adding a 5th rental property to my portfolio was not to be.  If you read My First Seller-Financed Deal, I was on the verge of what I thought to be a profitable investing decision at the time.  I'd analyzed my potential Cash-On-Cash (COC) return based on preliminary numbers, specifically, taking the sellers word for the value of the property (at the time).

Real Estate Investing Made Clear (PMC9) - ONLINE ANYTIME

What saved me from making a huge investing mistake?

The smartest thing I did during the process of attempting to procure this property was hiring a realtor-investor from the area.  I mentioned having hired a Keller-Williams agent who was local and also happened to invest herself in rental properties.  This was key.  First, she had plenty of connections in town (Little Rock, Arkansas), and she knew the market well.  After both parties signed the purchasing contract, she set us up with Stewart Title.  I made sure to have her add clauses in the contract that would allow me to back out of the deal.  Newbie RE investors...always have an inspection and appraisal clause in your purchasing agreements!  Most realtors do this anyway, but if you're not using a realtor, and are grabbing template purchasing contracts from the Internet, these clauses may not be included.

As my representative, part of my realtor's job was to be present at the inspection (buyer pays for this usually...cost me $250).  I gave her specific instructions: Size this property up for market value using your realtor and investor lens.  A day after the inspection, she offered me her market analysis and it was NO GOOD!  She stated to me that she believed the property to be worth about $60K, and that I could rent it for about $700.  Mind you, the purchasing contract was for a sales price of $75K.  So my realtor was telling me that I was overpaying by $15K!  It was not, however, because the house was in poor or run-down condition.  On the contrary, she found it to have "good bones" and be already in renting shape.  

Normally, realtors renegotiate price for you.  But, because I was the one to have reached out to the seller, and having been the one to establish rapport with him, I decided to email him with a new offer.  I explained to him via email that my realtor had "comped" the property and assessed it to be around $60K.  Of course this made the seller mad.  He'd put in way too much to renovate it, and was trying to recoup his original investment.  I offered him $65K.  He came back with $73K.  I told him I thought his price, based on my realtor's market analysis, was too high, and offered to have the property appraised on my dime.  To my luck, he agreed.  He obviously didn't trust my realtor's home value assessment.  Had he taken my $65K, I would've been underwater on this deal even before closing on it.

My realtor found me a company who appraises properties in the Little Rock area.  The cost to me was $500.  In retrospect, this is perhaps the best $500 I've ever spent.  The appraiser sent the results to my realtor about 6 days later, and the appraised price for the home was shocking: $50K!  I had my realtor share a copy of the entire appraisal report with the seller.  I let him stew on the shock of the results for a day, figuring he would be overly reactive if I gave him a new offer that same day.  The following day I sent him a well-crafted email.

To summarize it, I explained to him that the appraisal was independent, and unbiased.  That the market price of the home was begotten at the peak of our national real estate market, and that I believed a downturn would make it very difficult for the property to appreciate to the point of his current asking price ($73K).  (No way the home would gain $23K in price in 5 year's time, representing the length of our seller-financed term).

I offered him $55K, and claimed that I believed $5K to be a fair premium to pay above market price for a seller-financed deal.  I kept all the other terms the same, namely, $15K down payment, 7.5% rate for years 1-3, and 8.5% for years 4-5, amortized as a 30-year mortgage with balloon payment at the end of year 5.  He came back with a counter offer of $70K and added a new stove to sweeten the deal.  I was way dude.  I explained to him I could not give him $20K above market, and like all proud sellers he disputed the appraisal too!  He believed all of his upgrades to the home were not being rightly considered by the appraiser.

People, let me clue you in on something.  You doing some home improvements doesn't mean you're going to add a dollar spent for dollar appreciation to your home's value.  In fact, your ROI (return on investment) on a kitchen upgrade may be between 60-80% of what you paid.  The average ROI on a bathroom remodel is nationally about 62% of what you paid.  Unfortunately, the seller of this property believed his home was undervalued because his renovations were being underestimated, but that is not how appraisals work.

Sure, appraisers take into consideration how the home looks at the time of the appraisal, but they also look at similar properties that have sold in your area and the price paid for these other comparable homes.  This comparable homes factor is much more important to the appraisal than your kitchen or bathroom upgrades.

The seller and I didn't come to terms so I terminated the deal.  The seller could've asked for all of the EMD (Earnest Money Deposit), namely, $750, but out of courtesy for me giving him a free inspection and appraisal report on his home, he only asked for half of the EMD, $375.  If I were him I would've asked for all of the EMD!

Cost of Doing Business

As a real-estate investor, there will always be costs for doing business.  For this particular NO-DEAL, I spent:

$250 (Home Inspection)
$500 (Home Appraisal)
$375 (EMD to seller)
$300 (Realtor Fee for services rendered)
$75 (Title Company Fee for processing and termination)
Total: $1500

All of it is tax deductible so I'm not trippin'!

Lessons Learned

Next time I communicate with a seller willing to carry, I will make sure it is clear that I will give him/her full asking price if the property appraises at that price.  I will let the seller know that in the event of the property having serious issues (after an inspection) AND also not appraising at sales price, I may decide to either terminate the deal or send him/her another offer for consideration.  I will of course also let the seller know this will be included as a clause in the purchasing contract.

I made the mistake of not letting this seller know I'd reconsider the price after the inspection, and since he was a newbie at seller-financing, he didn't know to expect this.  He didn't have a realtor representing him so he was at a disadvantage doing it alone.  It's a good thing I was tactful and considerate at all time so as not to have a bitter end.

Well, back to the drawing board.  I hope these lessons have helped you on your real estate investing journey!  Until next time.      

Friday, June 26, 2020

Young Investors Club Invests In Stocks With Real Money, Lessons Learned

As a teacher, I've had the opportunity to be part of The Stock Market Game, a stock market investing simulation pitting same grade level teams against each other for ultimate bragging rights.  Each team gets the same amount of virtual money at the start, and they decide which stocks to buy and sell throughout the duration of the tournament.  The team with the most realized gains at the end, wins.  It's an exciting and great way to learn, with no true risks involved.

I never imagined finding a group of teenagers investing real money in the market and conducting themselves like an active fund, but that I did just recently.  And I have them here for you today! Enjoy!

Hi!  My name is Warren Weissbluth, and I am the current President of Young Investors Club (YGN).  Young Investors Club is an investment club where each participant invests real money in the stock market, and democratically decides how to go about investing.  The club's mission statement is, "To educate young adults about investing in the stock market."  We want to give our participants the tools to make informed investing decisions on stocks as well as to increase the financial literacy of our members.

YGN's History

Back in 2016, Jack Rosenthal founded YGN, noticing a lack of opportunities for teens to learn about investing, and get hands-on experience.  In order to develop something of value, Jack persuaded both Gersteinfisher and Young Presidents Organization (YPO) to sponsor an investing club for teens.  Jack focused on growing and promoting the club in order to increase the size of the portfolio and number of members.  Less than two years later, the club had expanded across the nation, gaining more than 40+ new members.  Today, the club has more than 90 members across the U.S.

I joined in 2017, and worked closely with Jack to develop a more interactive and educational agenda at the club.  By my sophomore year of high school, I was promoted to Chief Operating Officer.  Mid-way through my junior year, Jack resigned (he went off to college), and I became the club's President.

As President, I focused on the club's stability.  Between a myriad of issues, including accounting and legal accountability, as well as a lack of education and engagement, the club had lots of room for improvement.  At the start of 2020, a YPO parent, Yaniv Blumfeld, and I worked hard to restructure the club and help fulfill the club's mission.

For several weeks, we worked together to create a governance document, stating clearly in writing the inner workings of the club.  To improve transparency, we also wrote down how the club manages its portfolio of over $100 thousand dollars.  We created a management system, found a more experienced Board of Directors, and outlined everyone's responsibilities.  Finally, we developed an election process, and determined term limits on all club positions.

With more organized tasks such as club emails, calendars, websites, and holding reports, things could be effectively executed through the delegation process.  This transition breathed new life into the club, and sparked engagement.  Our regular communications now include Google Meets voice chats, full record of all decisions posted on the website, voting forms for all participants (even if they can't make the call), and thoughtful research reports on our investments.  The club has never been more engaging and exciting to be a part of!

Why Teens Need Financial Education

The skills one learns from financial education can help teens avoid blunders later in life.  Whether it be credit card debt, one's credit score, retirement, savings, and investing, there are many facets to adult life that are not inherent to young people.  While YGN only intends to educate on a portion of these goals, we hope that an early introduction into the world of finance will kick-start an interest in money management.  Similarly, being exposed to the marketplace as a young person can give valuable insight toward the way things are valued, and the nature of investments.

As President, I hope all members will be able to walk away from the club knowing that they have learned something useful to take forward as they head to college.

Joining or Replicating

YPO continues its sponsorship of the Young Investors Club.  As a result, the club is limited to YPO members and their children.  If you are part of YPO, please check out our website or reach out to for more information.  If you are not a YPO member, here is the link to join

Additionally, if you would like to learn more about starting your own local club, I am happy to provide guidance and insight!  It would be my pleasure to help anyone aspiring to build their own investing club.  Reach out to me if you have any questions!


Warren Weissbluth     

Sunday, June 14, 2020

My First Seller-Financed RE Deal, Under Contract

What an incredible year it has been.  And we're only half way through.  Before I talk about my first seller-financed RE deal, the why, how, etc., I want to make something clear for anyone new to my blog:

I support BLM, police reform, science, education, the LGBT and immigrant communities, am pro-choice (not pro-abortion as some may like to spin), pro-capitalism, not very religious...actually not religious at all, but I support everyone's right to be religious, etc., AND I cut my sandwiches into rectangles.  There, now you know.  If that puts you off...see ya!

  House is 3 bedrooms, 1 bath and roughly 1,200 sq. ft.

Why RE Investors Seek Out Seller-Financed Deals 

There comes a time when a RE investor will have too many properties in the books for their income, and banks (who dole out conventional loans/financing) will consider the buyer "over-leveraged."  Even if a RE investor has very little in the form of debt (car is paid off, no other credit card balances, e.g.), if their W2 income hasn't gone up, they will cap out eventually.  It's also relevant to note that banks only count a certain percentage of rents as "income" for their debt-to-income calculation.

For example, as a middle-school teacher, my salary is around $94K.  Unless I ramp that up, by returning to administration (I don't want to do this) for example, I'm no longer able to get financing conventionally, despite having four rental properties each cash-flowing and providing me with "other" income.  If I add my wife, Jessica, to the loan application, our collective income is higher, improving my numbers.  Jessica is currently on month 18 of her new career as a realtor, however, so there is not much track record of her income yet.  Only one year's taxes so far.  Everyone's situation is different, of course.  But all RE investors face this "problem" of financing at some point.  This is where finding seller financing comes in handy.

What is Seller-Financing?

Simply stated, seller-financing is the equivalent of a home seller choosing to become the bank.  Other ways of saying this OR of looking for it online in searches include, "seller will carry" and "seller will hold."  For personal or business reasons, a seller may choose to carry/hold a note (mortgage) for a buyer.  The buyer pays the seller (not directly, usually a loan servicing company is involved) a monthly payment of principal plus interest.  Just like in a conventional loan, the buyer is responsible for insuring the property, paying property taxes on it, etc.  Unlike bank financing, the seller can negotiate a higher interest rate, length of the loan, and other lending terms with the buyer.  Because a bank is not involved, both buyer and seller pay less in closing costs.  Buyers also don't have to meet the stringent lending standards of a bank.  The seller decides what he/she needs in the form of financial support/statements/checks to qualify the buyer, i.e., the borrower.

My Deal...How I Came To It

About 10 days ago, I got on Craigslist in Little Rock, Arkansas.  Craigslist is a good place to find off-market RE deals.  First question:  Why Little Rock?  I have done business with two "turnkey" RE companies in the Memphis, TN area.  One of these companies started selling turnkey properties in Little Rock, and is heavily pushing the area to its vast network of out-of-state investors.  So, just reading the future here.  If this company keeps selling in Little Rock, at slight premiums, the market will go up in the area.  This company also asks that after your fourth deal, you do 25% down payment for each subsequent deal.  They work with banks that demand this of investors after deal number 4.  I don't like paying more than 20% on RE deals, preferably less if possible.

Now, because I'm not in the area, and I don't like flying across the country, especially to a hot and humid place like Little Rock in the middle of the summer, I look for particular properties on Craigslist:

1) They must be ready to be rented in turnkey rehab condition.  Images will show this.
2) The owner must be the one posting the ad.  You must confirm this.  I cannot stress this enough: MAKE SURE THE SELLER OWNS THE PROPERTY OUTRIGHT.  It won't work if the seller still has a mortgage on the property.
3) Communicate with seller by phone after the seller replies to your inquiry.  Get a feel for the property from the seller, e.g., the type of area it is in, what they rent the property for (if currently rented), and how the seller arrived at their sales price.  It's your job (once you have the property address) to find area property values, appreciation potential based on market outlook, and if anything major in terms of repairs are needed on the property.  *Note, sellers may volunteer all this info, but only a property inspection by a legit inspector can tell you for sure.

I found one property that met my visual and description criteria.  There were several pictures backing up what the seller was stating in the blurb.  I emailed him,

"Hi, X,
I'm interested in your 3, 1 home.  Would you consider a seller financing deal?  I could swing up to 20% down ($15K) and we can discuss terms for the remaining $60K?"

In retrospect, I should've left off how much I was willing to do for the down.  But, the reason I offered 20% immediately was because the seller hadn't specified he'd do seller-financing.  The ad mentioned two contractual options, a) cash purchase, or b) rent-to-own.  The seller boasted having put in a new roof, HVAC system, and kitchen cabinets.  He mentioned having had the hardwood floor resurfaced, adding new kitchen tile flooring, and installing a new water heater.  Lastly, he also stated that he had just painted both inside and outside.  This gave me the impression that the seller/flipper had perhaps over spent on the rehab and needed some money back badly.  I doubt he would've taken less than 20% down.  This allowed me to get his attention too.

To my surprise, the seller agreed to consider the possibility of carrying the paper.  He gave me his telephone number and name so we could talk off Craigslist.  Why was I surprised?  Many sellers don't want to take on the responsibility of loaning to random people.  They may not understand the process, and are fearful about being scammed.  I lucked out though.  The seller would convey to Jessica and me while on the phone that he looked up seller financing on Google, learning how it works, prior to sending me his reply via Craigslist.  That was a great sign.  One of the difficulties of doing these types of deals is having to educate the seller.  Many sellers turn to family, accountants, friends, etc., who may not understand anything about real estate, and end up getting misinformed.

Deal Terms

On the phone we talked terms.  First a little friendly conversation to relieve the tension.  Jessica and I shared a little about ourselves and our goals.  The seller was willing to share a little about himself too.  Then we got to business.  Questions we asked him:

1)  Why are you looking to sell?
2)  How did you arrive at your selling price?
3)  Do you own the property outright?
4)  If we did a title search would there be any liens to his knowledge?

The seller was savvy enough (to his credit) to understand his position of leverage.  Namely, how to get a better rate on the note.  For example, we started by offering him 5% on a 30-year amortized schedule for payments with a balloon payment due at the end of the 5th year.  This would've been the best case scenario for us.  We had already agreed to the 20% down so we were stuck there.  He countered: "For 30-year amortized payments, I will need at least 7.5% on the loan with 5-year balloon payment."  See...he was smart enough to know the amortization was his leverage.  If you're lost, a 30-year amortization leads to smaller monthly payments.  Sellers in a seller-financed deal can ask for 15-year amortization or even 10-year!  The payments would've been too high for us.  As an investor, you want to pay the least amount every month so you can cash-flow.  Jessica and I countered with 7% rate, but he wouldn't take it.  Thus an agreement was reached with terms being:

Sales Price: $75K
The property is in a B to C class neighborhood, so it appraising right now at this price is probably not happening.  Comparing similar properties in the area, sales that is, I think the property is worth at least $65K, maybe a bit more.  Again, without an appraisal, there is no knowing for sure.  The Zillow forecast (I know you can't trust Zillow) calls for 11% appreciation for 2021.

Down Payment: $15K
Loan: 5-year, 7.5% interest rate, on a 30-year amortized schedule
Earnest Deposit: 1% of sales price or $750, to be applied to down payment

Now What?

We had no idea how to proceed beyond this.  This was our first seller-financed offer.  The seller too was doing this for the very first time.  I knew a written offer was next.  But how to go about getting a legal sales contract for the state of Arkansas?  I looked online.  I found some decent templates.  Jessica and I thought about just doing it ourselves.  But then we reconsidered.  We considered hiring a RE attorney next.  One RE attorney gave us a quote: $2,000 retainer and $300/hr. thereafter.  Ha!  No way.  In theory, hiring a lawyer for your very first time sounded like the prudent thing to do.  But they charge way too much.  If the deal had been for a $500K or more property, then maybe.

Then Jessica got the idea of talking with a local Keller-Williams realtor.  Jessica works for Keller-Williams in Carlsbad.  She found an agent there.  The agent happened to also be an investor.  That's what you want!  If you're not going to travel to the state to visually check out the property yourself, having an investor-realtor is the next best thing.  Not only will they advocate for you, but they will be present during the inspection, and tell you if the property is a dud or not.  Just because you agree to terms doesn't mean you can't back out.  The sales and purchase contract specifies all sorts of contingencies (termite clearance, etc.).

We hired the agent (agreeing to 2% commission) and she came with a network.  For example, she asked us to work with Stewart Title.  Stewart Title has an in-house lawyer who charged only $200 for the promissory, mortgage note portion.  The seller normally pays for this since it behooves them to have ownership of this part of the process.  Both buyer and seller have closing costs, and we agreed to pay our own side.  Our closing costs are roughly $954.  That's it!

Bottom Line

I expect to put at least $20K into this deal.  Here is a breakdown:

1) Down payment: $15K
2) Title and closing costs: $954
3) Home Inspection: $500
4) Realtor: $1500
5) New dishwasher: $500-$700
6) New stove: $500-$700

I used Bret Whissel's amortization calculator to estimate my principal AND interest payment: $419.53.

My cost to insure the property will be: $718/year or $59.83/month.

The property management company I will hire charges 8% of the rent amount.

Properties in the area rent for $750 to $800.  So, let's say it rents for $775.  Prop. mgt. fee would be 0.08 x 775 or $62.

Property taxes are currently $444.0/year or $37/month if impounded.

Total monthly costs (not including any maintenance) are:

419 + 59 + 62 + 37 = $577/month

Cash-flow: $775 (using conservative rent amount) - $577 = $198, call it $200.

Cash on Cash return =

$200 x 12 = $2400.
$2400/$20000 = .12 x 100 = 12%.  Not bad.  And it would've been better if I didn't have to buy the two appliances.

Realize this.  Most of the above expenses, with the exception of the down payment, will be tax deductible!  Also, my exit is going to be a conventional refi loan in about two years.  Will interest rates be crazy high in 2022?  Heck no!  We're barely starting our Covid19 depression.  So, in two years or less, I will seek out a cash-out mortgage (to pay off the balance of the loan to the seller) and lower interest rate, improving my cash-flow position.  Maintenance expenses aren't going to be that bad with all the new upgrades to the house. 

 I will keep you all up to date on this deal.  I've learned so much already, and I hope that by reading this, so have you!  Until next time.

Tuesday, June 2, 2020

The Berenstain Bears Help Kids Manage Their Allowance, Write Checks

The end of the school year is here.  Hooray!  Even as a middle school teacher I've struggled to keep my elementary age kids on task.  My son, a first grader, invented a whole new game: ditch "daddy school" when daddy isn't looking.  It involved him signaling his older sister, a second grader, when to make a mad dash up the stairs.  My yelling for them to stop and come back only made them giggle harder.

Even though they had a full compliment of activities, thanks in part to their awfully committed teachers (some days I wished they were less committed), we managed to finish the "school day" by noon.  They had plenty of time on hand to do other things before dinner like play, clean-up around the house, and watch television.  I didn't like the YouTube channel they watched, consisting of a family (mom, dad, and elementary age son) playing video games together.  Since I restricted how long they could play video games, they thought watching others play wouldn't violate any of my rules.  They thought wrong, obviously.

I had to stop that time-wasting nonsense and replace it with something more productive and constructive.  So I challenged my kids to earn money by reading books of my choosing.  I would buy them a set of books, and every time they finished one, they'd earn $1.  I went on eBay and found several money centered books for kids, but I'd like to focus on just two:

1.  The Berenstain Bears' Trouble With Money
2.  The Berenstain Bears' Dollar$ and $en$e

As everyone knows, Stan and Jan Berenstain have educated kids now for decades.  They have a slew of books on various topics.  My kids in fact have several other "Berenstain Bears" books that they love to read over and over.  Sticking to authors they're already familiar with helps pique their interest in any new book.

The Berenstain Bears' Trouble With Money

Quick summary:  Brother and Sister Bear spend their money at the Bear Country Mall just as soon as they get it or earn it.  Mother suggests to Papa that the cubs should have an allowance.  Papa believes the cubs are too young still.  Plus, Papa wants the cubs to learn how to work for money and save it for a rainy day.  The cubs start hustlin' like crazy, earning wads of cash doing side-gigs every day.  They surprise Papa by gifting him all their earned money, since he's constantly worrying about not having enough.  Papa comes to his senses and agrees to start the cubs on a regular allowance.  But first they take the cubs to the Bear Country Bank and open accounts for Sister and Brother.

Financial topics you can discuss with your kids from this book:  A) How to spend money, B) Why you need to save some of your money, C) Entrepreneurship, D) What a bank account is, E) What interest is.

Read "Trouble with Money" before...

The Berenstain Bears' Dollar$ and $en$e

Quick summary:  Papa Bear gives Brother and Sister Bear a weekly allowance to teach them to be responsible with money.  He tells them they can spend or save their allowance however they see fit.  The cubs repeatedly spend all of their allowance on the same day it is given, and consequently have no money left over for the rest of the week.  Mama has an idea that will help the cubs make better decisions with their allowance.

Great idea if you have kids who mismanage their allowance!

Mama found old checkbooks in a drawer.  She explained to the cubs what checks are for, namely, paying people, keeping balance records, or making them out to "Cash."  She made them write out a check to Cash in the amount they wished to withdraw from the bank (Mama, in this case).  This strategy helped the cubs think twice before making any new purchase.  Example,

Instead of spending $5 on baseball cards, half of his allowance, Brother changed his mind and bought a $3 baseball book.  The check he made out was for $3, and the record showed he had $7 "Allowance Left."

Financial skills learned: A) Making smarter purchasing decisions, B) How checks are utilized, C) How to write out a check.

Why I don't believe in an allowance for chores

There are many families that pay their kids an allowance for doing daily or weekly chores.  I'm not down with that.  I don't want to teach my kids to be employees, working for money by the hour or upon completion of a certain task.  I make my kids do chores, but only to teach them life skills they will need one day.  I prefer to pay my kids for reading, especially financial literacy books.

But it doesn't really matter how you decide to compensate your children for their efforts.  The fact remains that many of them will rush to spend their money without regard for saving, or the "needs vs. wants" mental processing.  Keeping your kid's cash as their bank, and forcing them to write out a check in order to withdraw, might help instill in them a better sense of money management.

Great job Stan & Jan Berenstain!